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Last Updated : Feb 28, 2019 02:40 PM IST | Source:

India-Pak standoff: MNCs explore political risk cover for their facilities

This insurance will provide coverage for any commercial loss due to political instability or attacks.

M Saraswathy @maamitalks

Multinational companies operating in India are looking for political risk covers for their manufacturing facilities in the wake of the India-Pakistan standoff.

Global insurance brokers told Moneycontrol that there has been a rise in enquiries for this product.

"A generic insurance product does not protect companies from the perils of political instability. Hence, a specialised cover that offers insurance against damage to property and causes loss of production is a must for MNCs," said the head of a mid-size insurance broking firm.


Among the companies seeking cover, are large manufacturing and consumer goods firms operating in India. These firms have large manufacturing facilities including plants and factories in several areas of North India, including Jammu & Kashmir, Punjab, Rajasthan and Delhi-NCR.

Tensions between India and Pakistan have been rising following the Pulwama terror attack in which 40 CRFP jawans were killed. Terrorist outfit Jaish-e-Mohammed (JeM) had claimed responsibility for the attack, following which India retaliated with an airstrike on its training camp in Balakot on February 26.

The later developments include an aerial confrontation between India and Pakistan in which one Pakistani F-16 jet and an IAF MiG-21 Bison were shot down. The Pakistan Army said it has arrested an Indian pilot whom it identified as Wing Commander Abhinandan Varthaman.

Taking cover

While individuals are not covered in a war, manufacturing facilities and commercial offices can be insured by companies.

Premium vary from 0.1 percent to 0.5 percent of the insured value.

For the shipping and aviation industries though, any damage to their properties due to war is only covered by the government. Officially, this is called the marine hull war insurance, which the government pays.

A political risk cover covers violence and impact on business due to civil disobedience or government decisions. Some of the incidents cover include expropriation, currency inconvertibility, political violence, sovereign default and other specific events.

Under security risk, kidnapping and ransom, terrorism, civil war, riots, property damage and business interruption are included.

Expropriation is when a private property is taken over by the government for use during a war.

Indian companies operating abroad also take such covers if they operate in political volatile regions like Yemen, Syria or specific regions in the Middle-East.

Initially there was a dearth of reinsurance capacity to cover large political risks. However, there are more than 50 specialist reinsurers in this segment now.

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First Published on Feb 28, 2019 01:38 pm
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